On July 22, 2015, the Treasury Department and the Internal Revenue Service (“IRS”) released proposed regulations (the “Proposed Regulations”) providing that in certain circumstances a service provider’s allocations of a partnership’s income may be treated as compensatory payments for services under the Internal Revenue Code of 1986, as amended (the “Code”). In particular, the Proposed Regulations are targeting arrangements in which a partnership’s manager has the ability to waive all or a portion of a management fee that the manager is otherwise entitled to receive in exchange for the manager (or the general partner) receiving a profits interest equal to the amount of the waived fee.

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